Tax Court: Military museum not entitled to educational exemption

The Indiana Tax Court has affirmed an Indiana Board of Tax Review’s final determination that a Madison County nonprofit military museum does not qualify for an educational purposes exemption, though the court did find a charitable exemption is applicable.

The McClain Museum, located in Anderson, exhibits military equipment used by the United States Armed Forces in various wars ranging from World War I through Desert Storm. Founded in 1989, the nonprofit was granted an exemption from federal income taxes pursuant to IRC § 501(c)(3).

Veterans, schools, scouting, police and other groups interested in military communications were given guided tours of the museum during the 2014 tax year. The museum also offered free admission to the general public that year to remain economically accessible for its visitors.

To offset some of its operating costs, the museum rented out a portion of its storage area to individuals to store their boats, rented part of its space for wedding receptions and parties, and permitted the storage of Yellow Pages books for Yellowbook Inc. Only one museum staff member was employed and paid, apart from a bookkeeper, leaving the museum to otherwise rely on volunteers.

When the museum applied for an educational purposes exemption in May 2014, the Madison County Property Tax Assessment Board of Appeals denied its application, prompting the museum to appeal to the Indiana Board of Tax Review. The museum claimed entitlement to both the educational and charitable purposes exemptions, but the board ultimately concluded the real property did not qualify for either.

In McClain Museum, Inc. v. Madison County Assessor, 18T-TA-1, the Indiana Tax Court affirmed in part the board’s final determination as to the educational purposes exemption.

“While there is no doubt that the public is educated and its knowledge enhanced about military history through the Museum’s displays, the Museum has nonetheless made no showing … that it conducts educational services, training, or coursework related to that topic,” Judge Martha Blood Wentworth wrote. “Moreover, the Museum has made no showing that the state’s burden to provide military history education is relieved or would be increased if it were not for the Museum.”

However, the Tax Court reversed the board’s determination that the museum’s property did not qualify for a charitable purposes exemption, finding the evidence contained in the administrative record supported its finding that the museum’s property is eligible for a 75% exemption based on the space that was not predominantly used for charitable purposes.

The Tax Court similarly noted that the board’s rationale failed to properly interpret and ultimately apply the terms “charity” and “human want.” It concluded the museum’s ownership, occupation and use of its property conveys “a gift for the benefit of the general public that is charitable in nature.”

The case was thus remanded to the Indiana board to ensure the Madison County Assessor complies with the Tax Court’s instructions.